Investment CLINIC

I HAVE seen a Fortress Bond paying interest of up to 4.5 pc advertised by Castle Trust. What is this? And is my money protected?

THE first thing to point out here is that the Fortress Bond is not the same as a fixed-rate bond from a bank or building society. It is a type of investment — and that means there are no guarantees on your returns.

Castle Trust launched in 2012. It offers a range of mortgage and investment products to consumers.

With an investment bond, you are lending your money to a company which promises to pay you back plus interest after a set period.

You can tie your money up with the Fortress Bond from one to five years, with annual interest paid ranging from 3 pc to 4.5 pc.

You also have a choice whether you want your interest paid in instalments every three months or in one lump sum when the bond matures.

But don’t forget, these investments are not eligible for Isas, so you will pay tax on any interest you earn. That brings the five-year bond interest down to 3.6 pc for basic-rate taxpayers. By comparison, currently the best five-year bank bond pays 3.3 pc, while the best cash Isa pays 2.1 pc.

So, what happens to the cash you give to Castle Trust? It will use the money from Fortress Bonds to loan out to its mortgage customers — and their repayments are used to pay your interest. This is where the risk lies: if the mortgage customers don’t make their repayments, you could lose out.

As a contingency, Castle Trust says it will keep around 20 pc of the money it holds back in cash.

But if Castle Trust itself should run into trouble, you also run the risk of losing your money.

The business is regulated and, on its website, it mentions that investments should be covered by the Financial Services Compensation Scheme. This covers cash you hold in the bank up to £85,000 and regulated investments up to £50,000.

But Castle Trust is a bit of a grey area and it depends under which circumstances you lose your money as to whether or not you are covered.

The Financial Services Compensation Scheme says it will consider claims when financial loss is due to n egligent or misleading advice by a regulated firm — the failure (for example, bankruptcy) of a regulated provider, or if losses were caused by misappropriation of funds by Castle Trust.

But even then, there are no guarantees you will get your money back. If you do, you will be able to claim back a maximum of £50,000.

The Fortress Bonds are available until April 30 and you can invest online, by telephone or by post. The minimum investment is £1,000.

If you have an investment question, email h.black@dailymail.co.uk or write to: Investment Clinic, Money Mail, Northcliffe House, Derry Street, London W8 5TT.

£50,000 How much of your invested money is protected by the Financial Services Compensation Scheme